December 08, 2010

How Market Economies Really Work

There is a rising opposition, among some Christians in the West, to market economies. Social science, joined with various claims about the inherent dangers of globalization (rarely defined in a clear way), have made their way into the public dialogue of many Christians. Since I have devoted a great deal of time to exposing how ideologies pose serious threats to the church’s commitment to the gospel I have spent more than a little time exploring this supposed threat through the growth of economic markets. I am quite convinced that opposing free markets is not an issue related to the gospel. Let me explain.

What is related to the gospel is freedom and virtue. A market, properly understood, is part of a decentralized economy that allows people to take initiative in providing for their own needs and those of others. People exchange goods, services and capital in a system of co-operation. Since the industrial revolution it was not the better use of land or the exploitation of workers, both of which happened, that really grew international markets. Economists have tested various explanations for this modern growth and the data supports the conclusion that most of it can be attributed to working smarter, not harder or with more inputs. It seems obvious that we work most productively when we specialize and learn to use technological inventions to co-operate more broadly.

The term “free markets” refers to people co-operating in non-coercive ways that are decentralized. Economist Stan Du Plessis, of the University of Stellenbosch, says there are three crucial aspects in a market system:

1. It is a form of co-operation that can occur between people with no necessary association (i.e. it can be impersonal).

2. The co-operation is entirely voluntary.

3. The co-operation is decentralized.

For these three to happen property rights must be secured and contracts must be legally honored. When these break down, markets will suffer untold harm and revolutions are not far behind, as we have seen in Latin America since the 1950s.

But make no mistake about this there is still wide-scale objection to free markets in the Christian community. A document produced by the World Alliance of Reformed Churches (2004, ACCRA) refers to the modern economy as an “immoral economic system.” But this is “a serious misrepresentation of market co-operation” says Stan du Plessis in a paper titled: “How Can You Be a Christian and an Economist?” (2010).

I think this whole debate comes down to a simple deduction made by critics of the free market that should be vigorously challenged. This assumption is that free markets do nothing more than promote selfishness and greed. While markets have been used to serve selfish ends this is not central to their existence or to their success. And free markets do not mean that the governments have no role in policy or policing. But government’s role should be as minimal as possible because the inherent tendency of government is to think that it can impact markets more effectively than those who are the direct participants in the system.

Bottom line: Markets are not inherently evil nor are they in conflict with Christian ethics. In fact, Christian ethics will serve society at large by reminding people that freedom and virtue are both needed to sustain successful and truly free markets over the long run.

I became aware of this again a few weeks ago by listening to a report on NPR about China and the social problems the nation faces as it deals with a growing economy. The consequences of Chinese governmental and social policies are such that their economic growth is being challenged in profound ways. Unless they learn how freedom and virtue is truly necessary for markets to flourish, and solve some major breakdowns in the young families of their nation where self-centeredness is a huge problem, they may not be able to sustain their amazing economic growth. This is a great opportunity for the church in China to show leaders how this can be done through the power of the gospel. The gospel makes people free and teaches them to be virtuous. This is what is inherently Christian and no economic system can thrive long-term without them.

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How Market Economies Really Work

There is a rising opposition, among some Christians in the West, to market economies. Social science, joined with various claims about the inherent dangers of globalization (rarely defined in a clear way), have made their way into the public dialogue of many Christians. Since I have devoted a great deal of time to exposing how ideologies pose serious threats to the church’s commitment to the gospel I have spent more than a little time exploring this supposed threat through the growth of economic markets. I am quite convinced that opposing free markets is not an issue related to the gospel. Let me explain.

What is related to the gospel is freedom and virtue. A market, properly understood, is part of a decentralized economy that allows people to take initiative in providing for their own needs and those of others. People exchange goods, services and capital in a system of co-operation. Since the industrial revolution it was not the better use of land or the exploitation of workers, both of which happened, that really grew international markets. Economists have tested various explanations for this modern growth and the data supports the conclusion that most of it can be attributed to working smarter, not harder or with more inputs. It seems obvious that we work most productively when we specialize and learn to use technological inventions to co-operate more broadly.

The term “free markets” refers to people co-operating in non-coercive ways that are decentralized. Economist Stan Du Plessis, of the University of Stellenbosch, says there are three crucial aspects in a market system:

1. It is a form of co-operation that can occur between people with no necessary association (i.e. it can be impersonal).

2. The co-operation is entirely voluntary.

3. The co-operation is decentralized.

For these three to happen property rights must be secured and contracts must be legally honored. When these break down, markets will suffer untold harm and revolutions are not far behind, as we have seen in Latin America since the 1950s.

But make no mistake about this there is still wide-scale objection to free markets in the Christian community. A document produced by the World Alliance of Reformed Churches (2004, ACCRA) refers to the modern economy as an “immoral economic system.” But this is “a serious misrepresentation of market co-operation” says Stan du Plessis in a paper titled: “How Can You Be a Christian and an Economist?” (2010).

I think this whole debate comes down to a simple deduction made by critics of the free market that should be vigorously challenged. This assumption is that free markets do nothing more than promote selfishness and greed. While markets have been used to serve selfish ends this is not central to their existence or to their success. And free markets do not mean that the governments have no role in policy or policing. But government’s role should be as minimal as possible because the inherent tendency of government is to think that it can impact markets more effectively than those who are the direct participants in the system.

Bottom line: Markets are not inherently evil nor are they in conflict with Christian ethics. In fact, Christian ethics will serve society at large by reminding people that freedom and virtue are both needed to sustain successful and truly free markets over the long run.

I became aware of this again a few weeks ago by listening to a report on NPR about China and the social problems the nation faces as it deals with a growing economy. The consequences of Chinese governmental and social policies are such that their economic growth is being challenged in profound ways. Unless they learn how freedom and virtue is truly necessary for markets to flourish, and solve some major breakdowns in the young families of their nation where self-centeredness is a huge problem, they may not be able to sustain their amazing economic growth. This is a great opportunity for the church in China to show leaders how this can be done through the power of the gospel. The gospel makes people free and teaches them to be virtuous. This is what is inherently Christian and no economic system can thrive long-term without them.